Contingency Fees: Re-leveling the Playing Field

Wednesday, May 1, 2019

Injured persons often don’t know where to go, or who to talk to, about issues like loss of income, medical treatment or other types of compensation. Most also don’t have the funds to pay a lawyer on an hourly basis.

It is in situations like this where contingency fees are necessary to level the playing field.

When dealing with an injury caused by an accident or negligence, medical or otherwise, many clients are not able to manage the legal costs of pursuing a claim alongside all of their other expenses. By allowing you to engage a lawyer, but delay payment until, and if, your case is successfully resolved, contingency fees allow anyone with a case that has merit to access legal services, regardless of their financial situation.

While straightforward in theory, there has been a lack of clarity and controversy around the actual process and the real cost of contingency fees, making contingency fees less effective as a means to level the playing field for clients pursuing compensation, and to make sure clients have real access to justice.

In the fall of 2017, the Law Society of Ontario (LSO) reviewed the contingency fee being charged by lawyers and found that there was a lack of consistency between lawyers as to the percentages charged and other practices. For instance, some lawyers were not charging clients anything if there was no amount recovered, others expected clients to pay some of the costs and disbursements, regardless of whether any amount of award or costs were recovered at the end of the case. As well, and more concerning, the LSO found that some lawyers were not following the rules regarding contingency fees.

To address these issues, the LSO released a series of recommendations to help ensure contingency fees serve their intended purpose and eliminate barriers to access to justice.

“The existence of contingency fees is critical in opening the doors to justice for all Ontarians, no matter your financial situation,” says Malcolm Mercer, Chair of the Law Society’s Advertising and Fee Arrangements Issues Working Group. “The recommendations transform the way contingency fees work, providing equal access to justice for all individuals, regardless of their ability to pay, while increasing clarity and visibility, and consumer protection.”

In the following article, we discuss the basics of contingency fees, outline the new LSO recommendations, and describe our approach to contingency fees at Soloway Wright to ensure fairness for our clients.

Contingency Fees: The Basics

Lawyers in Ontario have been able to offer contingency fee-based services since 2002. Contingency fees are largely used in the fields of personal injury, medical malpractice and employment law, where individuals are seeking compensation from larger entities like insurance companies. Contingency fees cannot be used in criminal or family law cases.

The Solicitors Act and, the Rules of Professional Conduct, govern the use of contingency fees. They require, in part, the following:

Once a client and lawyer agree to work together, they must execute an agreement in writing. The agreement has to be dated, signed and witnessed;

In all cases, the fees paid cannot exceed the amount received by the client (in other words, lawyer fees cannot exceed 50% of the settlement, cannot include amounts recovered for the costs incurred building and presenting the case, unless approved by a judge, and cannot be split with others except those allowed through the Rules of Professional Conduct.

Any amount paid for legal costs belongs to the client, not the lawyer unless the court has pre-approved a different fee agreement.

The Contingency Fee Agreement must include statements outlining the details of the matter, services, contingencies and fees including:

A statement on the nature of the matter and type of services offered

A statement noting that the client and lawyer have discusses both a contingency-fee and other means of retaining services, including hourly rates

A statement noting that the client understands they are allowed to compare rates

A statement noting that the client understands that the usual protections and controls still apply when entering a contingency fee agreement (i.e. // assessment of the lawyer’s account is still available before the court)

A statement explaining the contingency or conditions of the fee including details of the payment method, calculations, exclusions

An example of how the fee will be calculated

A statement informing the client that they can have the agreement and billing reviewed by a judge, and the timelines for that review

A statement explaining how the agreement can be terminated, and the costs/fees associated

A statement explaining that the client retains the right to make all the critical decisions regarding their matter

In litigation cases, further statements are required to protect the plaintiff, minors, and those with a disability. Finally, there should be nothing in the agreement to stop a client from cancelling the process or changing lawyers, although they may be required to pay an hourly rate to the lawyer who had initially represented them.

Clear as mud?

While all of these details are meant to protect clients, the LSO found that the regulatory language was overly complex and has “created difficulties for lawyers and clients for many years.”1

The LSO found that the complex agreement and lack of transparency around costs have resulted in some unscrupulous practices and unreasonable fees. They concluded that even before clients engaged legal help, they needed more transparency around the actual costs involved in pursuing a case, and a better understanding of fee structures and calculation methods offered by competing lawyers.

Tara Sweeney, a lawyer at Soloway Wright explains:

“It has become commonplace for lawyers to offer contingency fees at 30% or more of the settlement as if it is non-negotiable. However, all contingency fees should be set depending on the complexity, difficulty and settlement amount of each case. A straightforward automobile injury claim with a large settlement may not merit a 30% fee. Clients need to know that it is within their rights to discuss these fees and compare those fees with other firms before signing an agreement.”

The Law Society’s proposed changes, which include a mandatory, standard contingency fee agreement, and a “Know Your Rights Guide”, would allow prospective clients to make more informed choices and create a fairer marketplace, which is better for the consumer and the legal profession.

While the LSO’s recommendations have not yet been proclaimed by the Ontario Government, the Personal Injury, Insurance Law, Medical Malpractice, Employment Law groups at Soloway Wright have implemented most of the LSO’s recommendations as part of our normal legal practice. We believe strongly that our contingency-fee based services and agreements are clear and easy to understand. In each case, we will help you understand what you need to know, what you can expect and what steps we will take to help you take action on behalf of yourself and your family.